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Prairie River Home Care, Inc. v. Procura, LLC

United States District Court, D. Minnesota

July 10, 2019

PRAIRIE RIVER HOME CARE, INC., Plaintiff,
v.
PROCURA, LLC, a/k/a COMPLIA HEALTH, Defendant. PROCURA, LLC, a/k/a COMPLIA HEALTH, Defendant/Third-Party Plaintiff,
v.
SALO SOLUTIONS, INC. Third-Party Defendant.

          Jade B. Jorgenson and Pamela Abbate-Dattilo, FREDRIKSON & BYRON, PA, for plaintiff.

          Klay C. Ahrens, HELLMUTH & JOHNSON PLLC, and Hillard M. Sterling, TRAUB LIEBERMAN STRAUS & SHREWSBERRY LLP, for defendant and third-party plaintiff.

          Jeffrey M. Thompson, MEAGHER & GEER, PLLP, for third-party defendant.

          MEMORANDUM OPINION & ORDER

          JOHN R. TUNHEIM CHIEF JUDGE.

         This dispute involves three contracts entered into by Plaintiff Prairie River Home Care (“Prairie River”), a home healthcare provider based in Minnesota; Defendant and Third-Party Plaintiff Procura, LLC (“Procura”), a Michigan software company; and Third-Party Defendant Salo Solutions, Inc. (“Salo”), a consulting a training company. Prairie River contracted to buy a license to Procura's software, which never functioned properly on Prairie River's systems. Separately, Salo contracted with Prairie River to provide consulting and training services in connection with the implementation of Procura's software. Salo and Procura also had a contract stating terms for mutual client referrals.

         In its Second Amended Complaint, Prairie River brought five claims against Procura: (I) Breach of Contract; (II) Breach of Express Warranty; (III) Breach of the Implied Warranty of Merchantability; (IV) Fraudulent Inducement; and (V) Violations of the Illinois Consumer Fraud Act. Prairie River seeks monetary damages, including consequential damages. Procura then filed a Third-Party Complaint against Salo, alleging two Counts of Breach of Contract and seeking indemnification for Prairie River's claims against it.

         Two motions are now before the Court: (1) Procura's partial motion to dismiss Prairie River's claims for consequential damages and Counts III and V of the Second Amended Complaint; and (2) Salo's motion to dismiss the Third-Party Complaint. Because Prairie River has alleged facts sufficient to show that the contractual clauses limiting remedies and disclaiming consequential damages are invalid, the Court will deny Procura's motion to dismiss Prairie River's claims for consequential damages. Because the contract between Prairie River and Procura contains a valid warranty disclaimer, the Court will grant Procura's motion to dismiss Count III. Because Procura's alleged fraud did not occur primarily and substantially in Illinois, the Court will grant Procura's motion to dismiss Count V. Finally, because Procura has failed to state a claim against Salo, the Court will grant Salo's motion to dismiss in full.

         BACKGROUND

         I. The Prairie River/Procura Agreement

         Prairie River is a family-owned, Minnesota-based company that provides in-home care and medical services for the elderly and people with disabilities. (2d Am. Compl. (“SAC”) ¶¶ 5-7, Aug. 31, 2018, Docket No. 65.) Its corporate office is in Buffalo, Minnesota, and it has eight branch offices throughout the state. (Id. ¶ 7.) As a licensed, Medicare-certified home health agency, Prairie River is highly regulated and has specific billing and documentation needs. (Id. ¶¶ 5, 15.) It relies on commercial software designed for the care industry to meet those needs and to assist with other aspects of business management and operations. (See Id. ¶¶ 11-13, 15-16.)

         Prairie River was referred to Procura by Salo. (3d Party Compl. (“TPC”) ¶ 18, Sept. 17, 2018, Docket No. 69.) Prairie River contacted Procura in May of 2015 after seeing Procura advertise itself as offering “a complete (and highly configurable) software package” for care companies. (SAC ¶¶ 11-12.) At that time, Prairie River was using a software system called Riversoft. (Id. ¶ 12.) Although Riversoft was meeting Prairie River's needs, Prairie River was looking for enhanced documentation capabilities. (Id. ¶ 13.) To ensure that Procura was capable of meeting its needs, Prairie River described to Procura its billing and documentation needs, the large size of its database, and its need for a new software system to be “live” by February 2016. (Id. ¶¶ 15, 18, 20.) Procura assured Prairie River that its software (“the Software”) would meet Prairie River's needs, could be implemented by February 2016, and would be easy to customize. (Id. ¶¶ 15-18, 21.) Procura also told Prairie River that “tons” of former Riversoft customers had transitioned smoothly to the Software. (Id. ¶ 22.)

         Between June and October, 2015, Procura conducted several software demonstrations for Prairie River. (Id. ¶ 14.) Prairie River was unable to test the Software outside of those demonstrations. (Id.) On September 18, Procura representatives came to Prairie River's corporate office in Buffalo, Minnesota, to negotiate a sale. (Id. ¶ 25.) During that visit, Procura told Prairie River that it wanted to reach an agreement by September 30 so that it could include the sale in its third quarter reports. (Id.) Prairie River requested more time to consider the terms, but on September 29, Procura's President and CEO, Chris Junker, came to Minnesota to finalize the sale. (Id. ¶¶ 25-26.) Prairie River alleges that Junker pressured Prairie River representatives to commit to a sale by the next day. (Id. ¶ 26.) The parties ultimately entered into an agreement (the “Agreement”) on September 30. (Id. ¶ 27.)

         The Agreement gave Prairie River access to the Software and related support services in exchange for $521, 819.00. (Id. ¶¶ 29-31.) Procura agreed to provide both hardware and software support services, including in the case of a “Software Problem.” (Id. ¶ 31.) The Agreement defines “Software Problem” as “an inability of the Software to perform, in all material respects, in accordance with its related Documentation.” (Id. ¶ 32.) “Documentation” refers to Procura's “user guides, operating manuals, educational materials, product descriptions and specifications, technical manuals, supporting materials, and other information relating to the Software.” (Answer to SAC at 41, Ex. A (“Agreement”) § 1, Sept. 21, 2018, Docket No. 72-1.)

         The Agreement includes a “Warranty of Performance, ” warranting that the Software would “be capable of functioning substantially in accordance with its related [D]ocumentation” and “in a manner consistent with industry standards.” (Id. § 7.2(ii).) It also required the Software to be substantially functional within 90 days of the Agreement's execution. (Id. § 7.2(iii).) Finally, it explicitly limits remedies to a refund and disclaims consequential damages and all implied warranties:

8.1 Basic Disclaimer.
EXCEPT AS EXPRESSLY PROVIDED IN SECTION 7, THE SOFTWARE . . . AND ALL MAINTENANCE SUPPORT AND PROFESSIONAL SERVICES ARE PROVIDED ON AN “AS IS” BASIS WITH NO OTHER WARRANTIES OF ANY KIND, AND, UNLESS OTHERWISE PRECLUDED BY LAW, LICENSOR DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
9.1 Disclaimer of Consequential Damages.
EXCEPT WITH RESPECT TO A PARTY'S INDEMNIFICATION OBLIGATOINS AS SET FORTH IN THIS AGREEMENT, NEITHER PARTY . . . SHALL BE LIABLE UNDER THIS TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL LOSS OR DAMAGES OR ANY OTHER SIMILAR DAMAGES UNDER ANY THEORY OF LIABILITY.
9.2 Limitation of Liability.
EXCEPT WITH RESPECT TO LICENSOR'S INDEMNIFICATION OBLIGATION PURSUANT TO SECTION 11.1, BELOW, LICENSOR'S . . . TOTAL AGGREGATE LIABILITY TO CUSTOMER FOR ANY LOSS, COST, CLAIM OR DAMAGES OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT SHALL NOT EXCEED IN THE AGGREGATE THE AMOUNT OF FEES ACTUALLY PAID TO THE LICENSOR IN THE PREVIOUS TWELVE (12) MONTH PERIOD PRIOR TO THE INITIATION OF THE CLAIM BY CUSTOMER.

(Id. §§ 8.1, 9.1, 9.2.). The Agreement is governed by the laws of Illinois. (Id. ¶ 1.)

         II. The Salo/Procura Agreement

         Salo provides software implementation services for healthcare customers who are using Procura's software on their systems. (TPC ¶ 7.) In September 2014, Salo and Procura entered into a formal agreement (“Provider Agreement”) which established Salo as a preferred, but non-exclusive, provider of services related to Procura's software. (Id. ¶¶ 8-9, 12 & Ex. A (“Provider Agreement”), Sept. 17, 2019, Docket No. 69-1.) The Provider Agreement contained the following terms and warranties:

(1) “[Salo] is capable of providing Services that may be required by Procura's clients and represents that its employee personnel and contractors are sufficiently trained and knowledgeable to provide the Services;” (2) “All Services provided by [Salo] shall be pursuant to a separate agreement between [Salo] and the clients . . . who elect to obtain such Services;” and (3) “Each [a]greement entered into between [Salo] and a Procura client shall include a provision indicating that the client shall look solely to [Salo] for the provision of the Services and the results achieved therefrom.”

(Provider Agreement §§ 2-3.)

         The Provider Agreement contemplated that Salo and Procura would benefit from mutual customer referrals. (See Id. §§ 4-5.) As such, it contains terms for royalty payments from each party to the other upon successful referrals. For each “[a]greement entered into between [Salo] and a client referred to by Procura, ” the Provider Agreement requires Salo to pay a royalty to Procura. (Id. § 4.) Likewise, “for fees for software and services billed and collected by Procura for new clients referred to Procura by [Salo], ” Procura is required to pay a royalty to Salo. (Id. § 5.) Where a prospective client was “previously identified and contacted by Procura prior to [Salo's] submission of the customer name to Procura, ” Procura is not required to pay Salo royalty payments. (Id.) The Provider Agreement does not define “refer” or “referral.”

         The Provider Agreement also contains the following indemnification clause:

[Salo] agrees to protect, defend, indemnify and hold Procura harmless from any and all claims, actions, suits, costs, losses, expenses, damages or liability whatsoever, whether direct or indirect . . . which Procura . . . may incur . . . as a result of, caused by or arising out of or in connection with, or contributed to, in whole or in part, directly or indirectly by: (i) [Salo's] failure to comply with the terms of this Agreement and/or violation of any federal, state or local law…; (ii) any illegal activities alleged to have been committed by, or involving [Salo]…; and/or (iv) the performance of any Services separately provided by [Salo], its agents, or employees.

(Id. § 9.) There is a similar clause indemnifying Salo in the case of Procura's breach, illegal activities, or separate performance of services. (Id.) The contract is governed by the laws of Ohio. (Id. § 12.)

         III. The Salo/Prairie River Agreement

         Prairie River alleges that, after it entered into the Agreement with Procura, Procura informed Prairie River that Salo would conduct the implementation because Procura did not have the bandwidth to do so itself. (SAC ¶¶ 34-35.) The Agreement itself stated that “Professional Services shall be provided by Salo Solutions and they shall provide [Prairie River] with their own contract terms and conditions and [Prairie River] agrees to look solely to Salo Solutions with respect to the performance of such services and results obtained therefrom.” (Agreement at 14.) The Agreement identifies the “Professional Services” that Prairie River would receive from Salo as separate from the maintenance support that Procura agreed to provide to Prairie River. (See Agreement § 1.)[1]

         Prairie River and Salo entered into their own, separate agreement for information technology consulting services (the “Salo/Prairie River Agreement” or “SPRA”) on October 21, 2015. (TPC ¶ 19 & Ex. B (“SPRA”), Docket No. 69-2.) The SPRA does not define the scope of Salo's services to Prairie River, but instead contains a provision stating that for each engagement, “a document defining the scope of work (‘Work Order') shall be prepared.” (SPRA § 1.1.)

         On the same day they executed the SPRA, Salo and Prairie River executed a Work Order. (TPC ¶ 23 & Ex. C (“Work Order), Docket No. 69-3.) The Work Order described Salo's “technical and operational consulting” services and identified five objectives for its work with Prairie River: (1) [f]ocus . . . on a “knowledge transfer” to “assist in shaping the software to meet [Prairie River's] needs;” (2) build a Procura system “based on the unique business operations and specifications of the Prairie River operation;” (3) “Train the Trainer, ” i.e. train Prairie River personnel to train other employees; (4) “provide a prioritized risk mitigation summary;” and (5) support a “‘Procura lead' in training [Prairie River] offices during GO LIVE, and assist in transitioning [Prairie River] operations to Procura Support after GO LIVE.” (Work Order at 3.)

         IV. Software Failures at Prairie River

         Although Procura had delivered a database to Prairie River by November 2015- within the 90-day window established by the Agreement-the Software wasn't functional at any Prairie River office until June 2016. (SAC ¶¶ 38, 40.) Prairie River alleges that six major categories of software failures occurred after the Software was implemented. (See Id. ¶¶ 44-89.)

         i. Point of Care Failures

         In August and September, 2016, the Software went live at six Prairie River branches. (Id. ¶ 48.) Employees at those offices began to report missing documents due to failures in the Point of Care (“POC”) synchronization process. (Id. ¶ 45, 48.) POC refers to a function that syncs clinical data to a central server from local PCs. (Id.) Although Prairie River had its own backup system, it could not retrieve the missing documents from that system. (Id. ΒΆ 48.) Prairie River initially believed the losses were caused by user error, but later realized that they were ...


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